For those who are new to the world of business, packaging costs are an oft-overlooked matter. Because the packaging is extraneous to the product itself, it is usually thrown away by the customer. In spite of this fact, product packaging is still an important part of your overall strategy. Here are just a few of the reasons that product packaging is so important:
- Provides a much longer shelf life
- Protects the product from moisture and humidity
- Provides some protection against physical damage
- Provides an opportunity for branding and visual appeal
- Reduces the risk of product tampering
As you can see, this is not a matter that should be neglected. With that in mind, let’s consider how you can calculate the cost of your product’s packaging.
The Most Crucial Factors
When you calculate the cost of your packaging, you have to apply the same principles that you would use for any other business decision. You will need to consider all the factors and account for their impact. Here are the major factors that will probably influence the cost of your packaging:
- 1. Cost of raw materials
- 2. Cost of modifying the production process
- 3. Bulk buying requirements
- 4. Labor costs
- 5. Distribution And Storage
1. Cost Of Raw Materials
Obviously, these costs will cover the cardboard, plastic, paper, or any other material that is used for packaging. Let’s take a quick look at some prices and determine which materials offer the best value.
Folding cartons are basically made of thick paper, which is sometimes laminated with a water-resistant material. These packages aren’t the most durable in the world, but they are very good for light-duty applications. Depending on the quantity of your purchase, these can be as cheap as $0.08. Even at their most expensive, they won’t run you more than $1.75 each.
By contrast, corrugated cardboard offers much better protection and much better thermal insulation. Of course, they are made from much stouter material, so they are more expensive than Kraft paper. Depending on how many you buy, corrugated cardboard will normally cost somewhere between $1.10 and $3.00 per box.
Finally, let’s consider the cost of plastic containers. You will see a lot more variety here because plastic containers come in so many forms. For instance, a clamshell-type package will always cost more than a blister pack because it requires more material and more processing. The thickness of the plastic will also play a big role. Most of the time, plastic is the cheapest option, as its prices range between $0.05 and $1.00 per container.
2. Production Costs
Whenever you introduce a new element to your production process, there is a chance that costs can increase. Even if that doesn’t happen, you will almost certainly have to modify your production process to accommodate the new packaging. Before adopting a new type of packaging, you should consider these costs carefully.
The big question to ask is: Will we need to buy additional equipment? If not, your costs will mostly be labor costs (more on those below). However, you will probably have to purchase at least a little bit of new equipment to make things work correctly. This might include racks, control units, and storage for the packaging materials (among other things).
3. Buying Requirements
As you may have noticed earlier, the size of your purchase has a lot to do with the price. This is because companies who make packaging know their business. When you are only getting $0.25 to $3.50 per item, you have to sell quite a few of them before you can break even. Like you, these packaging companies have material costs, and they must clear these costs before they make a profit. Thus, it works out better for them if you buy a large order. In the end, it will also probably work out better for you as well. Short runs of packaging will tend to be a lot more expensive.
Unless you are running a small, home-based business in which you do everything yourself, you will have to think about labor costs. In many cases, you will not see a significant increase when switching to a new type of packaging. However, this will depend on how radical a change you have made. If your new packaging is structurally identical to the old packaging (meaning that the changes are just cosmetic), you should see little to no difference in labor costs.
However, a change in package type can make a big difference in labor costs. To illustrate what we mean, let’s consider an example. Let’s say that your old packaging took 1.5 seconds per box to assemble. Now, let’s say that your new packaging takes about 2 seconds per box. That’s only 0.5 seconds worth of difference, right?
That answer would be wrong. That 0.5 seconds will have to be multiplied by the total number of packages that are assembled per day. If you are trying to do 500 packages per day, that extra half-second will become an extra 250 seconds (about 4 minutes). If we bump the delay up to a full second (which is not unrealistic at all), the number goes up to about 8.5 minutes. That may not seem like much, but now you have to multiply it by your total number of packaging employees! All of this matters because your employees are being paid by the hour. Therefore, time is money, and every little bit counts.
5. Distribution And Storage
Just as you will probably have to modify your production methods to accommodate new packaging, you may also have to modify your distribution and shipping methods. For instance, a larger package will take up more room in a truck. Therefore, you will have to adjust the capacity numbers accordingly. If you are using a very compact and well-designed package, you might not see much difference in this area.
When you switch to a new packaging method, you must also deal with the storage of materials. Whether its cardboard, plastic, or anything else, you will have to make some storage space. This might also include the cost of storage racks or extra containers. For companies that have ample storage space, this one might be a very small problem. Indeed, it may not be a problem at all for those who own their storage facilities (which eliminates rental costs).
Hard Costs Vs. Soft Costs
When calculating the costs of your packaging (or any other costs, for that matter), it pays to know the difference between hard expenses and soft expenses. The primary difference is that hard costs are simple and straightforward. Soft expenses, on the other hand, are a little more nebulous and difficult to calculate.
Hard costs are usually assessed in one lump sum for a clearly defined purpose. For instance, design costs are usually hard costs. When the package designer gets to work, they will generally give you a set price. Because this is just a simple, one-time expense, there is no need to do any complex figuring.
The cost of packaging materials (including filler materials) is also considered to be a hard cost. The companies that sell these things are pretty consistent, and will generally offer a steady rate based on the number of containers purchased. Once again, this one is simple and straightforward. If you feel the need to hire an advisor for this project, that will also be classified as a hard expense.
Of course, it is important to note the importance of getting hard price figures from these companies and individuals. As soon as they put any non-standard conditions on the price, they have created a soft cost for you. In most cases, you don’t want that. Hard costs are much easier to tabulate, so try to keep things as simple and direct as possible. Any company that won’t give you a clear-cut estimate is a company that might not be worth your time.
Soft costs, on the other hand, include the things that aren’t so obvious. For instance, we might come back to the costs of material storage. Most companies pay rent for storage space, so every square inch of that space is important. That can be a problem, especially when combined with the need to buy packaging materials in bulk. You will probably get a cheaper deal when you buy a huge batch, but you will then have to worry about where to store them.
Labor is another soft cost, and it isn’t hard to see why that is so. Productivity will naturally vary from employee to employee, and it wouldn’t be realistic to expect everyone to perform at the same speed. Still, there is a certain acceptable minimum, and your workers can definitely affect the bottom line if they slack and go beyond this minimum.
A Word About Custom Packaging
In the world of advertising, there is no doubt that uniqueness is a big advantage. Indeed, there are many products that have succeeded because they were unique in some way, so don’t underestimate this factor. Because uniqueness is so important to brand identity, you might consider the use of custom-designed packaging.
While all packaging is custom-designed to some extent, we are talking about the strange cases here. If you want to make a truly odd package that sets you apart from the competition, you might want to get several price estimates first. This kind of packaging might cost more money than it’s worth.
A Word About Printing Costs
When working on your package design, you will need to decide if you will make use of printed graphics in any way. It is a difficult decision because there are good arguments in both directions. On the one hand, a more colorful package will draw the eye and help you to attract more attention. As more attention on your product is always a good thing, printed graphics are often worth the extra money. However, that extra money could be a problem for companies with a small packaging budget.
If you want to find a middle ground, you might consider the use of printed graphics that are not in color. Black-and-white printing may not stand out so much, but it offers you the ability to decorate your package at a fraction of the cost. You might even choose to go with a color scheme that includes only black, white, and one other color. Since you are only paying for three colors (two of which are basic), your printing costs should be reduced significantly.
Consider The Price Factor
When you are designing a package for a given item, you have to consider the cost of that item. Basically, you need to fit the price of the item to the price of the packaging. For instance, it would be silly to spend $1.50 to package an item that only costs $1.00 to make. If you did something this foolish, you would end up losing $0.50 on every package you made.
Likewise, it would be silly to worry about spending a couple of extra dollars on the packaging for a particularly expensive item. For instance, let’s say you are selling one of those high-capacity memory sticks for a computer. These things can often sell for $100 or more, so it’s well worth it to spend a few extra bucks for theft-resistant packaging.
There are all kinds of things that have to be considered when a new package is being designed and adopted. We hope that we have given you a good overview of those factors and that you will now be able to make a more intelligent decision about how to proceed. If we have done a good job in this, please fill out the contact form below to receive more of our expert advice on this and many other subjects.